Stock market reaction to environmental corporate social responsibility in Sweden

Abstract: Although a vast number of studies have examined the influence of environmental performance on firms’ financial performance, most of them are conducted in a non-Swedish setting. As Sweden is a forerunner when it comes to environmental CSR, the purpose of our study is to examine the relationship between announcements of environmental news and stock market reaction in a Swedish context. By conducting an event study based on announcements of environmental news in a Swedish newspaper from 2004 to 2018, we find that there is no stock market reaction to announcements of environmental news in Sweden. However, companies acting environmentally responsible can actually add extra value to the firm the day after the announcement and harmful environmental behavior results in a significant decrease in stock price the day before the announcement. By running regression, we find that the positive Swedish stock market reaction to environmental friendly events decrease over time. Last, our findings suggest that environmental friendly announcements of intents are valued more positively than that of achievements. In light of the increasing concern with the environment and the understanding of stakeholder theory, managers need to continue working with environmental CSR proactively in order to keep or even improve reputation.